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Know Your Facts: Oil Prices
June 27, 2012
This blog is one of a series of three pieces designed to shed light and truth on three different economic issues that will be inevitably discussed during the 2012 Presidential campaign.
Everyone knows the price of a gallon of gas. Gas prices are advertised on virtually every street corner in town. Everyone uses it and everyone hates it when they see prices go up. So, it’s an easy jab at a sitting president to blame him (or her) for higher gas prices knowing that it will resonate with the public. Every sitting president since Richard Nixon has been blamed by their opponent for high gasoline prices due to an ineffective energy policy, limited drilling, refinery restrictions, etc. etc.
The truth?
The U.S. government, much less the president, has any real influence over the price that we pay for gasoline. Oil is a fungible commodity whose price is determined by the global forces of supply and demand. Just like gold, sugar, corn there are hundreds of individual producers and thousands of consumers. So, no single entity controls its price.
In the world today, well over 120 countries produce a total of over 100 million barrels of oil every day for sale on world markets. Of course, the production of oil is heavily skewed toward the top 10 producers (of which the U.S. is third). The top 10 alone are responsible for over half the world’s production, and the top 20 produce nearly 75%. But even Ireland makes the list with its 430 barrels per day.
So, increased production by any single producer, even if it is one million barrels per day, scarcely affects world oil prices. Even at its peak, the enormous oil reservoir from the North Slope of Alaska produced just 1.9 million barrels per day and that only lasted for two years. The recent discoveries in North Dakota are estimated to produce only about half-a-million barrels per day.
The real beneficiaries of new production are those who own land where the discoveries are made, and, of course, the oil companies that pump and process the newly found oil. Local consumers don’t feel the effects significantly as the oil is transported to other markets where demand is strong.
So, when you hear blame placed for higher gas prices this election season, refer to the facts. Can the price of gas truly be linked to any one person or one government?
